Invention, Innovation and Technology

• Invention is the "discovery" of a novel device, method, or process for the first time.
• Innovation = efficiency / productivity, influences economic growth and solves problems by using knowledge.
• Innovation involves implementing an invention into reality.
• Innovation is a device, method, or process that solves a problem and has economic relevance.
• Technology applies tools, materials, processes, and techniques to human activity, including information technology, biological, mechanical, and new materials.
• Technological Innovation uses technology to create new solutions to problems.
• Technological innovation introduces a new device, method, or material with commercial or practical objectives.

Types of Innovations (taxonomies)

• Product innovation includes innovation in goods and services like electric cars and medical drugs.
• Process innovation includes innovation in producing or marketing goods or services like 3D printing.
• New product and process innovations often occur together.
• Radical innovation differs significantly from prior solutions, such as mRNA vaccines.
• Incremental innovation makes a minor, impactful change to existing practices.
• Planned innovation results from deliberate R&D efforts.
• Accidental innovation, like penicillin, microwave, or Viagra, results from serendipity, typically from research and development.

Value Creation

• Innovation creates value for customers by meeting previously unmet needs with new products and services.
• Innovation creates value for companies by enabling a competitive advantage.
• Innovation creates value for society by improving lives through efficient production, medical technologies, and greener transportation.
• Innovation positively impacts GDP, using technology to increase the efficiency of labor and capital, allowing for productivity improvements.

Negative Externalities of Innovation

• Innovation substitutes labor and obsolescence of jobs.
• Efficient production leads to fewer labor inputs, environmental impact, violation of human rights, political conflicts, and consumer privacy issues.

How to measure innovation

• Measures include observational data on new product/service launches, websites, trade fairs, processes, questionnaires, patents, and R&D expenses.
• Collection of the data can be a challenge as well as tracking of process innovations

Who innovates?

• Innovation can be performend by Governments, Universities, Private Companies, Nonprofit Organizations
• Countries such as China, US (gross exp); Israel, Korea (% GDP) contribute heavily.
• R&D is often performed in high-tech Industries.
• Large (exp) and small (intensity; R&D/sales) firms conduct R&D.
• Most R&D investments are made by big firms, influential innovations originate from established firms.

Entrepreneurship

• Innovation is the primary driver of industrial development.
• Innovation causes cyclical instability and economic growth
• Economic cycles of the past two centuries are linked to innovation in specific sectors, each time different depending on the industry dynamics.
• A new wave cycle begins with a widely adopted set of innovations, stimulating investment and expansion.
• Investments opportunities and returns decline.
• The majority of innovations come from developing countries.

Schumpeter's Waves

• Innovation causes cyclical instability and economic growth
• Innovations are not isolated events and are not distributed uniformly in time.
• Economic cycles of the past two centuries are linked to innovation in specific sectors, each time different depending on the industry dynamics.
• A new wave cycle begins with a widely adopted set of innovations.
• Innovation stimulates investment and expansion in economy
• Finally, investments opportunities and returns decline.
• Schumpeter's waves include the Industrial revolution, Mechanical age, Electricity and chemical age, Automative and petrolchemical age and Information technology age.

Lecture 3. Sources of Innovation

• Important to quantify the extent of innovative activities, but measurement is not straightforward
• Most used metrics: R&D spending
• Different patterns of R&D spending occurs across countries, firms vs. Government, industrial sectors, firm size
• Entrepreneurship is an important driver of innovation, but with high risk of failure
• Innovation is triggered by technological change (R&D), to do things that could not be done before or could be done less efficiently

Technological Change

• Technology "pushes" when a new technology occurs before anyone identifies a market need.
• Many technological changes do not produce innovations without a viable market need.
• Delays often occur in applying technology to products because of initial roughness, unavailable complementary technologies, and no initial use detection.
• Market-driven changes create opportunities by altering people's preferences.
• Regulatory, social, and demographic changes are all factors.

The Market

• The market "pulls” when customers are asking for a product that satisfies their needs.
• Technology determines whether it is possible
• Technology may suffice or it may trigger the development of a new technology
• Existing technology may not solve the problem, and developing new technology is uncertain.

Types of research and development

• Basic Research (tech push) understands fundamental scientific principles and a natural phenomena.
• Applied Research (market pull) understands fundamental scientific and technical principles to use that knowledge for a specific objective/commercial application.
• Development uses existing technological knowledge to produce something of commercial use with no new fundamental knowledge needed.

Innovation Actors

• Firms perform the majority of applied research and development.
• Government-Funded research conducts research and invests in research done by firms through subsidies, grants, and technological parks.
• Under-investment is due to the appropriability problem as well as proximity favors the transfer of “tacit" knowledge.
• Universities conduct basic research but perform applied research

Universities

• The objective of the research should get to the market.
• Universities work under contract research (by firms), train students and license to firms the rights to exploit these innovations
• Private non-profits and individuals may create a solution to their own needs
• "Lead users": the use of a product / practice generates knowledge that helps to identify needs that the majority of users will have in the future
• They develop entirely new products or modify existing ones without profit motivation, so they approach existing manufacturers
• They may also start own business to perform user entrepreneurship
• Established firms identify lead users and closely interact with crowdsourcing platforms

Challenges of Investing in R&D

• Investment is risky and long term
• Investment is difficult to appropriate, as the firm that invests in R&D does not capture all of the benefits, creating "technological spillovers".

Benefits of Investing in R&D

• Firms invest because they want to create new technologies as the basis for new products, processes and services to differentiate from competitors
• Firms want to detect, absorb and use externally generated ideas with "absorptive capacity".
• Firms must understand its relevance and how to absorb and use it to take advantage of external R&D.
• Firms profit from both internal (own R&D) and external R&D. Learning happens through different mechanisms: Contract R&D, Hiring students, Collaborations, Imitation
• Internal and external R&D are substitutes or complements and are more profitable if done together than in isolation

Lecture 4: Technology Evolution

• Technological trajectories depend on scientific advances and are shaped by economic, social, and political forces.
• Advances are made as researchers seek answers to current technical problems, building on prior knowledge.
• The process leads scientists to work with particular frameworks or technological paradigms, which influence technical problem solving.
• Tendency of scientists and engineers to work within technological paradigms leads to the emergence of technological trajectories.
• Technology trajectory is the path of improvement a technology takes through time on some performance dimension.
• The S-Curve graphically represents the development of a new technology, comparing performance with effort invested.

Early Stage

• Progress is slow because fundamentals are poorly understood.
• Different paths need exploration, important decisions, complementary technologies and scarcity of trained researchers.

Accelerated Improvement

• A company demonstrates a greater understanding of the technology and increasing returns of the investment.

Phase of Slowdown

• Technology reaches its "natural" limits and creates an increasingly marginal improvement.
• Alternative Technologies attract increasing attention
• The S-curve flattens

S-Curve: Technological Improvements

• Improvements tend to be incremental, building on prior developments and done by established firms (“incumbents").

Shifting S-Curves

• Occurs when existing technology reaches the point of diminishing returns, and a new technology is developed to challenge the existing one.
• This is a radical change.
• New products are typically inferior to the existing ones.

Who Shifts the S-Curve?

• Usually, new entrants.
• Incumbents have no incentive to introduce the new technology, and new technologies cannibalize sales.
• They will not view the new technology as a threat.
• Performance of old technology can still be improved due to organizational obstacles to change

The Abernathy-Utterback Model

• Indicates shifts towards process innovation over time

Technologies Evolve

• Through periods of incremental innovation, interrupted by periods of radical innovation.

Fluid Phase

• The phase in which many firms enter and compete on the basis of different product designs
• Eventually, the firms in the industry converge to a dominant design.

Specific Phase

• A phase characterized by incremental innovation, specially process innovations
• There is a common way on how to design the product which reduces costs

Alternative Models of Technological Change

• Sustaining innovation improves the performance of existing products but does not create new markets.
• Disruptive innovation improves a dimension that the market does not initially value, creating a new market.

The Innovator Dilemma

• The preferences of the mainstream customers cause incumbents' failure in the transition to disruptive techs
• Entrant firms enter in the market to serve the new product to the small niche of costumers who value this product
• When the technology improves, the new entrants go for the main market

Architectural vs. Modular Innovation

• Modular innovation changes the components from which the innovation is created, whereas Architectural innovation changes the linkages between the components and how the components interact

Lecture 5: Innovation Diffusion and Adoption

• Technology adoption depends on technology performance.
• Adoption affects technology evolution.
• Diffusion is the process by which an innovation gets adopted.
• Adoption is historically slow, averaging 13.6 years with a lot of variation.
• S-curves often explain types of people adopting the technology.

INNOVATORS (2.5%)

• Adopt immediately
• Innovators are adventurous and comfortable with complexity and uncertainty, along with access to substantial financial resources
• They are superior in knowing the technical aspects and will adopt new versions

EARLY ADOPTERS (13.5%)

• Follow the innovators and are well integrated into their social system
• They have great potential for opinion leadership as they are respectful by peers who value adoption decisions.

EARLY MAJORITY (34%)

• Early group to adopt innovations
• They are not leaders, but interact frequently with peers.
• They recognize the value, with considerations in needs

LATE MAJORITY (34%)

• Adopt after other people adopt successfully after a long amount of time
• SKeptical of values

LAGARDS

• Prefer to avoid adoption
• They may base their decisions primarily upon past experience rather than influence from the social network, and they possess almost no opinion leadership and are highly skeptical of innovations and innovators

Movements along the adoption curve

• Each segment has different needs
• Challenges occur to reach early majority

The Chasm

• Represents the difference between early adopters and early majority
• The majority of firms need to reach a mass of customers to reach profitability. If not, the potential market is small
• Comprehensive needs are required like product solution, customer service, manuals, etc
• Vertical Marketing strategy is best

Diffusion

• Pace to which a technology is adopted by potential users
• Evaluates market attractiveness at a given point to enter market
• Product design variations are important

Models

• The innovator / imitator Model demonstrates the distribution in population in the Market vs. mainstream market
• A shaped curve is used when innovators are greater than imitators

Lecture 6: Technology Standards

• Is a set of conditions for a component of a system

Elements

• Facilitates operation
• Demonstrates a reason for existance

Network Effects are Important

• Industries are physically networked, compatibility is important, and complimentary goods
• Complimentary enhances other goods, installed base is number of adopters

Value of technology

• Sum of Intrinsnic Value, installd base and availabilty of goods

Do standards coexist?

• Yes, when value is satiated

Technical are caused by chance, superiority and governments

• Standards Wars occur between technologies
• Win Support , Manage expectations, be compatible
• Losers must conform and tailor the market
• Winners can earn money and determine evolution.

###Lecture 7: Appropriation

• Determine how the firm captures its rents from innovation
• Determined by limits in occurance
• Imititation from "revserse engineering" occurs through chain and projects

Protection

• Intellectual Property Rights is a means of protecting

Patents

• Patents are legal right to prevent others from using an invents
• The incentive encourages innovation
• What can be Patenting in Utility

Patents

• Legal documents exclude use of it
• Can be on something abstract or an action that is tangible.
• Not for discoveries or ideas
• Industrious Design

Patents

• Have not been invented!
• Have not have been non obivousn

Usefulness

• Patents grant monopolies in geographic areas
• There must be use for a commercial value
• Patents are awarded to first file. The patent can only be given if there are disclosures: utility, machine, and technique.
• Utility can be a chemical. Idea cannot be claimed for a patent. Novelty: already done? Non-obvious: new? Must be commercial. If you disclose before patent, you cannot patent (publication)

Barrier to Imitation

• If threat of imiations and litigations of imitations. When some uses, sells , or imports infringments occur. The owner can obtain injunctions
• More efficient to sell technology
• It helps new firms to gain capital, disclose technology and not deter imitation

Disadvantages

• Complex requires fees
• Patent protection is costly and have to go after infriingers

Patent protection implies information is used!

• Great innovation by disclosure occurs. Must reverse-engineer.